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The National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) convened for their 2016 Annual Conference in Washington, DC this week. The “Public Day” of the conference, held on Monday, October 16, provided an opportunity for nonprofit leaders, professional counselors and advisers, and academics to learn about “the evolving world of state charities regulation,” which was the theme of this year’s conference.

The public session included informative panel discussions on non-traditional models of philanthropy; regulation of donor-advised funds, endowments, and restricted gifts; top issues in corporate governance and the importance of nonprofit board education; new tools for the nonprofit sector; current trends in cybersecurity and how to handle data breaches; and the collaboration between the Federal Trade Commission (FTC) and regulators from all 50 states and the District of Columbia in the historic civil suit against four cancer charities in 2015. The final panel of the public session featured state attorneys general of the NAAG Charities Committee discussing how the regulation of charities has evolved over time and what to expect in the years to come.

Below are some highlights of the Public Day of the 2016 NAAG/NASCO Annual Conference:

Non-Traditional Models of Philanthropy

The public session commenced with a panel discussing the increasing popularity of non-traditional forms of philanthropy. In late 2015, Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, pledged 99% of their wealth to charity and launched the Chan-Zuckerberg Initiative (CZI) to manage their contributions. However, CZI is not a charitable foundation or trust; instead, it is a for-profit, limited liability company. In recent years, regulators have seen an increase in the formation of entities like CZI, as well as benefit corporations, low-profit limited liability companies (L3Cs), and social-purpose corporations. These new business models often are for-profit entities that prioritize charitable or social purposes over profit maximization, or simply for-profit business entities (such as CZI) that provide their owners with maximum flexibility as to how to pursue charitable and social goals through a less-regulated business model. The entities are able to leverage financial, intellectual, technological, and network resources to a much greater degree than traditional nonprofits. Many states have passed legislation adopting some of these hybrid business models—providing parameters for regulators in their oversight and enforcement of the same—while others remain largely unrelated.

Making Nonprofit Data More Publicly Accessible

The availability of data on nonprofit organizations promotes transparency and accountability, and it aids regulators in their ability to oversee the activities of organizations and take enforcement actions when necessary. In recent years, both public and private efforts have been undertaken to make data on nonprofit organizations more accessible to the general public.

IRS Form 990. In June 2016, the Internal Revenue Service (IRS) announced the public availability of data on electronically filed Forms 990, which is the IRS’s primary tool for obtaining information about tax-exempt organizations, from 2011 to present, in a machine-readable format through Amazon Web Services. However, the data does not include donor information or other personally identifiable information.

Single Portal Project. The single portal project is an initiative of NAAG and NASCO, working together with the Multistate Registration and Filing Portal, Inc. (MRFP), a Delaware nonprofit corporation, to develop an online system that will streamline the state registration and annual filing requirements for both charitable organizations and professional fundraisers. The single portal is expected to create efficiencies in the filing process and reduce administrative costs for charitable organizations and professional fundraisers, increase transparency by making registration and financial information available to the general public, and enable information-sharing among state regulators, academics, and policymakers. There are 13 pilot states participating in the initial development of the single portal platform. In early 2016, MRFP published a Request for Information for input on the single portal and received constructive feedback. MRFP has invited grant proposals and is currently searching for a vendor to build and launch the single portal platform. MRFP expects to launch the platform among the 13 pilot states in the near future.

Citizenaudit.org is a newer online platform that enables users to learn about a nonprofit organization by running keyword searches that result in the development of an in-depth nonprofit profile based on information from the organization’s IRS Forms 990 dating back 15 years. This platform also provides the ability to map and visualize connections between a nonprofit organization and its board members, officers, and key employees, with other nonprofit organizations. It is a useful tool for academics, charity watchdog groups, and anyone interested in analyzing large numbers of nonprofit organizations, or for an individual or corporation conducting due diligence prior to donating to or partnering with a particular nonprofit organization.

Enforcement Trends Following the Cancer Fund of America Multi-State Litigation

In May 2015, the Federal Trade Commission (FTC) and state charity regulators from all 50 states and the District of Columbia filed a historic civil suit against four alleged sham cancer charities—Cancer Fund of America (CFA), Cancer Support Services (CSS), Children’s Cancer Fund of America (CCFA), and The Breast Cancer Society (TBCS)—and several of their executives, asserting that the charities engaged in deceptive charitable solicitation practices by making false and misleading claims in their appeals to donors. This was the largest joint action ever taken by the FTC and state charity regulators. CCFA, TBCS, and their respective principals reached an agreement with the plaintiffs at the time the complaint was filed. CFA and CSS later agreed to a $75.8 million judgment and to dissolve the organizations in March 2016.

The successful collaboration between the FTC and state charity regulators sent a clear message that both federal and state regulators will not tolerate deceptive fundraising practices. Moreover, charitable organizations that utilize gift-in-kind (GIK) programs should make sure that their valuation and ownership transfer of donated goods is proper and well documented, because such practices were at the center of the multi-state investigation. During the public session, regulators acknowledged that by working together, they were able to leverage resources and achieve an outcome that a single agency or regulator would not have been able to pursue on its own. Federal and state regulators are communicating more, sharing information with each other, and using technology to work together more efficiently and effectively. This means that, undoubtedly, there will be more multi-state cooperation among federal and state regulators to tackle perceived bad actors.

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